From CompliNEWS | Financial Service Intelligence Watch

Deciphering digital assets: Understanding cryptocurrencies, NFTs and the future of investments


Amid the growing buzz surrounding digital assets, it’s understandable that this topic can be quite perplexing. A simple search engine query can lead you on a convoluted journey, potentially leaving you more bewildered than when you started. However, in light of recent news that the UK is actively pursuing regulation of the crypto industry to position itself as a global crypto hub, it’s crucial to clarify the concept of digital assets, particularly focusing on investment funds and their potential future implications.

To begin with, let’s demystify some of the terms frequently encountered in this context.

‘Digital assets’ is a broad term encompassing anything created and stored in a digital format that holds value. This umbrella term can include a wide range of items such as videos, images, and data. However, in the realm of finance, digital assets primarily refer to crypto tokens (commonly known as cryptocurrencies and non-fungible tokens), collateralised stablecoins, central bank digital currencies (CBDCs), and everything in between.

There is a growing consensus that digital assets are poised to gain broader acceptance and usage. While we often hear about cryptocurrencies and crypto assets, it’s essential to understand that ‘crypto’ denotes that these currencies or assets are digitally secured through cryptography. Most cryptocurrencies operate on decentralised networks using blockchain technology, which is a distributed ledger maintained by a network of disparate computers or nodes.

Bitcoin, the pioneer cryptocurrency introduced in 2009, remains the most widely recognised. As of the current moment, there are over 8 000 active cryptocurrencies, according to data from Exploding Topics, a trend-tracking website. Bitcoin, with a market capitalization of approximately $690 billion (£555 billion), continues to dominate the cryptocurrency landscape.

The potential applications of crypto assets have expanded in recent years, leading to the emergence of new asset classes. For instance, Non-Fungible Tokens (NFTs) are unique digital tokens that can represent one-of-a-kind items like art.

In a noteworthy development, Bitcoin recently reached a 17-month high due to increased speculation that US regulators may approve conventional stock market funds for direct investment in cryptocurrencies. This development has raised expectations that the US Securities and Exchange Commission (SEC) may soon endorse a Bitcoin exchange-traded fund (ETF). If this were to occur, it could have far-reaching consequences, even in the UK. Such a move would allow investors to gain exposure to Bitcoin without owning the cryptocurrency directly, potentially sparking a wave of new interest.

Furthermore, the listing of BlackRock’s iShares Bitcoin ETF on the website of clearing firm DTCC has fuelled speculation in this regard. The implications of these developments extend beyond borders, and they underscore the dynamic nature of the digital asset landscape, which is rapidly evolving and attracting attention from both investors and regulators.